When you’re ready to access the equity in your home, you have two main options: a home equity loan or cash-out refinance. Both have their pros and cons, so it’s important to understand the key differences before you make a decision.
Here are a few things to consider when deciding between a home equity loan and cash-out refinance:
-Your financial goals: What are you hoping to accomplish by taking out a loan? If you need a lump sum of cash for a one-time expense, a home equity loan may be the better option. If you’re looking to lower your monthly payments or pay off your mortgage sooner, a cash-out refinance may be a better fit.
-Your credit score and income: You’ll need good credit and a steady income to qualify for either loan. But you may have an easier time qualifying for a home equity loan if you have strong credit and a lower debt-to-income ratio.
-Your home equity: To get a home equity loan, you’ll need to have equity in your home. The amount of equity you have will determine how much you can borrow. With a cash-out refinance, you can borrow up to 80% of your home’s value, minus any outstanding mortgage debt.
-Loan terms and interest rates: Home equity loans typically have shorter terms than cash-out refinances, and they usually come with fixed interest rates. Cash-out refinances typically have longer terms and come with either fixed or adjustable interest rates.
-Closing costs: Both home equity loans and cash-out refinances come with closing costs. These can include things like appraisal fees, origination fees, and title insurance.